Michigan Judge Rules That Sports Event Contracts Are Not Swaps

Judge sides with Michigan on contentious prediction markets issue

Michigan is one of many U.S. states to be in court arguing that sports-event contracts are sports bets and should face the same regulations as a legal and regulated sports betting site operating in the state. The decision by Judge Maloney in U.S. District Court in the Western District of Michigan is the most emphatic argument so far favoring a state.

The opposing sides are nothing new to anyone who's been paying attention to this ongoing saga in the U.S. gambling industry. Michigan argued that sports-event contracts constitute illegal sports betting. Polymarket claims its sports-event contracts should be considered swaps under the federal regulations of the CFTC.

Judge Maloney didn't beat around the bush when issuing his ruling. He basically called Polymarket's case pointless.

"Plaintiff thus has not met its burden to show a likelihood of success on the merits, and the cloudy legal forecast weakens its showings on the other factors,” Maloney wrote in his ruling. “Plaintiff’s motion for a preliminary injunction will thus be denied.”

Judge labels Polymarket case as being borderline unwinnable

In his ruling, Judge Maloney suggested that the chances of Polymakret ultimately winning this battle were a pipe dream.

"Plaintiff's vision of the scope of derivatives is so vast that it would encompass vast swaths of activity never understood to be associated with the financial industry and instead traditionally associated with core state, as opposed to federal, responsibilities," Maloney said in his ruling.

"Congress is not so cavalier with the fundamental federalist structure of the government. [T]he Court is convinced that its laws in the wake of the 2008 financial crisis were not aimed at fundamentally redefining the balance between the federal and state governments in ways unrelated to the problems it set out to solve."

The judge also found Polymarket's use of the 2010 Dodd-Frank Act as justification for labeling sports-event contracts as swaps was a thin premise. That law dealt with the financial crisis of 2008. It had nothing to do with sports.

"The primary issue it set out to solve had nothing to do with sports-related contracts,” Maloney wrote. “The markets with which Congress was concerned were dominated by large financial institutions and did not involve individuals staking relatively small amounts of money on the outcome of a football game.”

This ruling comes a week before the same court will be ruling on a similar case. That case is pitting prediction market site Kalshi against the state of Michigan.

What will happen next?

This case will now move forward to the Sixth Circuit Court of Appeals. That court will begin deliberating the matter next month.

This battle with deeply entrenched sites will likely to go all the way to the U.S. Supreme Court.